India, May 17 -- Among the many appeals Prime Minister Narendra Modi made to the nation while making a case for adopting austerity in the national interest, one stood out: his request that Indians defer buying gold for at least a year.

Modi made the remarks while addressing a BJP rally in Hyderabad on May 10. His focus on gold was not accidental. Gold is one of the single largest non-essential drains on India's foreign exchange reserves.

Why gold? India is among the world's largest consumers of gold, importing roughly 700 to 800 tonnes annually while producing barely one to two tonnes domestically. More than 90% of the country's gold demand is therefore met through imports.

Unlike crude oil or industrial metals, gold does not directly ...